MANAGING THE STRATEGIC PROCESS -2.pptx

CHAPTER 3...

CHAPTER 3 Strategic Leadership: Managing the Strategy Process ©ISerg/iStock/Getty Images RF ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  The AFI Strategy Framework Exhibit 1.3 Jump to Appendix 1 long image description ©McGraw-Hill Education.  Learning Objectives LO 3-1 Generate a PESTEL analysis to evaluate the impact of external factors on the firm. LO 3-2 Differentiate the roles of firm effects and industry effects in determining firm performance. LO 3-3 Apply Porter’s five competitive forces to explain the profit potential of different industries. LO 3-4 Explain how competitive industry structure shapes rivalry among competitors. LO 3-5 Describe the strategic role of complements in creating positive-sum co-opetition. LO 3-6 Explain the five choices required for market entry. LO 3-7 Appraise the role of industry dynamics and industry convergence in shaping the firm’s external environment. LO 3-8 Generate a strategic group model to reveal performance differences between clusters of firms in the same industry. ©McGraw-Hill Education.  How External Factors Impact a Firm General Environment Managers have little control Macroeconomic factors Interest / currency exchange rates Task Environment Managers can influence Composition of strategic groups Industry structure ©McGraw-Hill Education.  The PESTEL Model Groups environmental factors into six segments: 1. Political 2. Economic 3. Sociocultural 4. Technological 5. Ecological 6. Legal A straightforward way to scan, monitor, and evaluate ©McGraw-Hill Education.  The Firm Within Its External Environment Jump to Appendix 2 long image description Exhibit 3.1 ©McGraw-Hill Education.  Political Factors Processes & actions of government bodies Can be shaped through: Lobbying Public Relations Contributions Litigation Political and legal forces are closely related. ©McGraw-Hill Education.  Economic Factors Largely macro-economic Economy-wide phenomena Examples include: Growth rates Levels of employment Interest rates Price stability Currency exchange rates ©McGraw-Hill Education.  Sociocultural Factors Society’s cultures, norms, and values Are constantly in flux Differ across groups Demographic trends Population characteristics Age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class ©McGraw-Hill Education.  Technological Factors Application of knowledge New processes and products Innovations in process technology: Lean manufacturing and Six Sigma quality Innovations in product technology: Smartphones and wearable devices ©McGraw-Hill Education.  Ecological Factors Broad environmental issues: Natural environment Global warming Sustainable economic growth Can provide business opportunities Tesla cars have zero emissions ©McGraw-Hill Education.  Legal Factors Official outcomes of political processes: Laws Mandates Regulations Court decisions Many industries have been deregulated: Airlines, telecom, energy, and trucking ©McGraw-Hill Education.  Industry vs. Firm Effects Industry Effects Elements in common to all Entry and exit barriers, number and size of companies, and types of products and services offered Firm Effects The actions managers take More important than firm effects ©McGraw-Hill Education.  Superior Firm Performance Exhibit 3.2 Jump to Appendix 3 long image description ©McGraw-Hill Education.  Industry & Industry Analysis Industry: Group of incumbent companies Relatively similar suppliers and buyers Similar products and services Industry analysis, a method to: Identify an industry’s profit potential Derive implications for a firm’s strategic position ©McGraw-Hill Education.  Threat of Entry (1 of 2) The risk that potential competitors will enter an industry Lowers industry profit potential: Incumbents lower prices Incumbents spend more to satisfy existing customers. Entry barriers: Obstacles blocking others from entering A significant predictor of industry profit potential ©McGraw-Hill Education.  Strategic Positioning A firm’s ability to: Create value for customers (V) Contain costs (C) Goal: Generate a large gap between: The value the firm’s product or service creates The cost required to produce it ©McGraw-Hill Education.  Porter’s Five Forces Model Exhibit 3.3 SOURCE: Michael E. Porter, “The five competitive forces that shape strategy,” Harvard Business Review, January 2008. Jump to Appendix 4 long image description ©McGraw-Hill Education.  Threat of Entry (2 of 2) The risk that potential competitors will enter the industry Entry barriers: Economies of scale Network effects Customer switching costs Capital requirements Advantages independent of size Government policy Credible threat of retaliation ©McGraw-Hill Education.  Power of Suppliers Pressures that industry suppliers can exert on an industry’s profit potential Lowers industry profit potential if: Suppliers demand higher prices for their inputs Suppliers reduce quality ©McGraw-Hill Education.  Power of Buyers (Customers) Pressure customers put on an industry Lowers industry profit potential if: Buyers obtain price discounts Reduces revenue Buyers demand higher quality / service Raises production costs ©McGraw-Hill Education.  Threat of Substitutes Meet the same basic customer need But in a different way Available from outside the given industry Examples: Energy drinks vs. coffee Videoconferencing vs. business travel E-mail vs. express mail ©McGraw-Hill Education.  Rivalry Among Competitors The intensity with which companies in the same industry jockey for market share and profitability Other forces pressure this rivalry Examples of tactics: Price discounting After sales service ©McGraw-Hill Education.  Competitive Industry Structure Number and size of competitors Firm’s degree of pricing power Type of product or service Commodity or differentiated Height of entry barriers ©McGraw-Hill Education.  4 Main Competitive Industry Structures Jump to Appendix 5 long image description Exhibit 3.4 ©McGraw-Hill Education.  Industry Growth Affects intensity of rivalry among competitors During periods of high growth: Consumer demand rises Price competition among firms decreases During periods of negative growth: Rivalry is fierce Rivals can only gain at the expense of one another ©McGraw-Hill Education.  Strategic Commitments Firm actions that are: Costly Long-term oriented Difficult to reverse Affects intensity of rivalry among competitors Example: airline industry Hub and spoke model requires significant investment ©McGraw-Hill Education.  Exit Barriers Obstacles that determine how easily a firm can leave that industry Mainly economic and social factors Examples: Contractual obligations Emotional attachments ©McGraw-Hill Education.  A Sixth Force: Complements and Co- Opetition Complements: A product, service, or competency Adds value when used with the original product Co-opetition: Cooperation by competitors to achieve a strategic objective ©McGraw-Hill Education.  Entry Choices Exhibit 3.6 Source: Based on and adapted from Zachary M.A., Gianiodis P.T., Tyge Payne G., and G.D. Markman (2014), Entry timing: enduring lessons and future directions, Journal of Management, 41: 1409; and Bryce D.J. and J.H. Dyer (2007), Strategies to crack well- guarded markets, Harvard Business Review, May: 84-92. ©McGraw-Hill Education. Jump to Appendix 6 long image  Industry Dynamics Provides insight about: Changing speed of an industry Rate of innovation Analysis must repeat over time Industry structures aren’t stable They are dynamic ©McGraw-Hill Education.  Industry Convergence When unrelated industries satisfy the same need Caused by technological advances Example: Media Industries Content going online Newspapers, magazines, TV, movies, radio, music Will print media become obsolete? ©McGraw-Hill Education.  Strategic Groups Strategic groups: A set of companies Pursue a similar strategy In the same industry The strategic group model (framework): Clusters different firms into groups Is based on key strategic dimensions ©McGraw-Hill Education.  How to Create a Strategic Group Map 1. Identify the important strategic dimensions 2. Choose two key dimensions For horizontal and vertical axes Ensure they’re not highly correlated 3. Graph the firms in the strategic group Each firm’s market share indicated by the size of the bubble ©McGraw-Hill Education.  Strategic Group Map: Domestic Airline Industry Exhibit 3.7 Jump to Appendix 7 long image description ©McGraw-Hill Education.  Insights from Strategic Group Mapping 1. Competitive rivalry: Strongest between firms in the same strategic group 2. External environment: Affects strategic groups differently 3. Five competitive forces: Affect strategic groups differently 4. Profitability: Some strategic groups more profitable ©McGraw-Hill Education. than others  Mobility Barrier Restrict movement between strategic groups Industry-specific factors Based on hard-to-reverse investments ©McGraw-Hill Education.